BROAD STOCK MARKET/PRECIOUS METALS UPDATE and COMMENT ON FED MEETING (11:30 pm EDT)
Today the U.S. Federal Reserve decided to delay an interest rate hike yet again but delivered comments hinting that the first hike may be coming in December. The Fed's statement downplayed the influence of foreign markets on their decision and emphasized that the condition of the U.S. economy was the main factor influencing their policy strategy. Most investors had been expecting another hike delay so that was not a surprise, but Fed rhetoric referencing a possible December hike cast a hawkish shadow over the FOMC statement and may have caused some investors to panic. This would explain the abrupt 150 point plunge in the DOW immediately after the release of the Fed's statement (following a 130 point rise earlier in the day). The panic, however, was short-lived, and the DOW quickly recovered and closed the day with a 198 point gain. Although this snap back was very bullish, such high volatility demonstrates just how nervous the markets are right now. Even though we are still in a reversal zone (ending early next week) for the broad stock market, our short positions (based on the S&P 500) now have a small loss, and some traders may wish to cover these positions as there is the possibility of the market "breaking out" and continuing the rally from here. I am personally going to remain short a bit longer as I feel there is still a good chance the market will turn down within the next several days. Directional momentum is still mixed bullish and bearish for all three major stock indices (DOW, S&P 500, and NASDAQ), the S&P 500 is approaching very strong resistance underneath the bottom of a gigantic "dome top" as well as completing a large "head and shoulders top" formation in its chart, and we are still in a reversal zone for equities. I am going to set the final stop loss for this short position on a clear break and weekly close above 2135 in the S&P 500 accompanied by a bullish change in directional momentum. Maintaining my short position in the broad stock market for now.
The slightly hawkish tone of the Fed's statement also had a strong effect on the U.S. dollar. The U.S. Dollar Index soared after the statement was released at 2:00 PM. This caused gold and silver prices (which had been rising strongly into early afternoon) to collapse. This left an especially strong short-term bearish signal in silver charts. As I stated in my last blog, both metals may now move a bit lower and find some support (gold around $1145 - $1150 and silver around $15) before rallying again. If this happens, we will want to watch for the peak of that rally (which may not get very far) to sell short for a strong correction into the end of the year. If the European Central Bank's president Mario Draghi follows through with his pledge of "easy money" (QE) for Europe's failing economies, this could strengthen the U.S. dollar into the end of the year and coincide with a significant price correction in the precious metals. On the sidelines of gold and silver for now.
Today the U.S. Federal Reserve decided to delay an interest rate hike yet again but delivered comments hinting that the first hike may be coming in December. The Fed's statement downplayed the influence of foreign markets on their decision and emphasized that the condition of the U.S. economy was the main factor influencing their policy strategy. Most investors had been expecting another hike delay so that was not a surprise, but Fed rhetoric referencing a possible December hike cast a hawkish shadow over the FOMC statement and may have caused some investors to panic. This would explain the abrupt 150 point plunge in the DOW immediately after the release of the Fed's statement (following a 130 point rise earlier in the day). The panic, however, was short-lived, and the DOW quickly recovered and closed the day with a 198 point gain. Although this snap back was very bullish, such high volatility demonstrates just how nervous the markets are right now. Even though we are still in a reversal zone (ending early next week) for the broad stock market, our short positions (based on the S&P 500) now have a small loss, and some traders may wish to cover these positions as there is the possibility of the market "breaking out" and continuing the rally from here. I am personally going to remain short a bit longer as I feel there is still a good chance the market will turn down within the next several days. Directional momentum is still mixed bullish and bearish for all three major stock indices (DOW, S&P 500, and NASDAQ), the S&P 500 is approaching very strong resistance underneath the bottom of a gigantic "dome top" as well as completing a large "head and shoulders top" formation in its chart, and we are still in a reversal zone for equities. I am going to set the final stop loss for this short position on a clear break and weekly close above 2135 in the S&P 500 accompanied by a bullish change in directional momentum. Maintaining my short position in the broad stock market for now.
The slightly hawkish tone of the Fed's statement also had a strong effect on the U.S. dollar. The U.S. Dollar Index soared after the statement was released at 2:00 PM. This caused gold and silver prices (which had been rising strongly into early afternoon) to collapse. This left an especially strong short-term bearish signal in silver charts. As I stated in my last blog, both metals may now move a bit lower and find some support (gold around $1145 - $1150 and silver around $15) before rallying again. If this happens, we will want to watch for the peak of that rally (which may not get very far) to sell short for a strong correction into the end of the year. If the European Central Bank's president Mario Draghi follows through with his pledge of "easy money" (QE) for Europe's failing economies, this could strengthen the U.S. dollar into the end of the year and coincide with a significant price correction in the precious metals. On the sidelines of gold and silver for now.
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